The price of gold tumbled while the dollar firmed up on Friday after President Donald Trump selected Kevin Warsh to succeed Jerome Powell as Federal Reserve chair.
Spot gold tumbled 8.50 per cent at $4,866.60 per ounce as of 4pm ET, while silver fell nearly 30 per cent to $81.93 an ounce. Spot copper, platinum and palladium also posted steep declines.
The US Dollar Index was up 0.84 per cent at 97.09.
The decision ends months of speculation over who will lead the world's most significant central bank after Mr Powell's chairmanship expires in May. Mr Warsh, who served on the Federal Reserve from 2006-2011, was seen as one of the less dovish contenders for the job.
He has called for major changes at how the Fed does its business, going so far as to seek “regime change”. And in an interview with CNBC in July he called for “a new Treasury-Fed accord, like we did in 1951 after another period where we built up our nation’s debt and we were stuck with a central bank that was working at cross purposes with the Treasury.”
In a speech before the Group of Thirty and the International Monetary Fund last April, Mr Warsh called Fed independence “important and worthy”, while also arguing the institution has weakened that case by straying from its central mandate.
Interest rate decisions
Treasury yields ticked higher as traders assessed how Mr Warsh will guide future interest rate decisions when – if confirmed – he takes over the Fed this year. Mr Warsh was previously considered an inflation hawk during his time at the Fed, although he has recently criticised Mr Powell for not lowering rates more.
The yield on the 10-year Treasury was up 1.8 basis points at 4.245 per cent, while the 30-year was up 2.7 basis points at 4.881 per cent. The yield on the 2-year Treasury, which closely tracks Fed decisions, was down 2.2 basis points at 3.529 per cent.
“Many investors see the appointment as leading to a steepening in the yield curve, with near-term easing helping to depress short-end rates while a shrinking balance sheet drives long-term yields higher,” Karl Schamotta, chief market strategist at Corpay, wrote to clients.
“This is likely overwrought – Warsh does not have a strong record of persuading his colleagues to follow his ideas, recent voting shows little appetite for aggressive easing into a still-hot economy, and balance-sheet operations are now geared to maintaining reserve liquidity, not managing broader financial conditions – and might ultimately unwind, reducing the dollar's gains.”
Futures markets still anticipate the Fed will cut interest rates twice this year, which would bring the federal funds rate to the target range of 3 to 3.25 by the end of December.
Mr Trump has relentlessly pushed the Federal Reserve to deliver steep rate cuts since he returned to office last year. Speaking to reporters on Friday, Mr Trump said it would probably be inappropriate to ask Mr Warsh about specific plans for cutting rates, but said the Fed chair nominee favours rate cuts.
“For those hoping for interest rate relief from the Federal Reserve in 2026, the nomination of Kevin Warsh as the new chairman of the Fed should be extremely well received. Warsh’s prior service as a Fed governor will be enormously valuable in steering the Fed towards the lower interest rate environment that the Trump administration has been advocating,” Marty Green, principal at Polunsky Beitel Green, wrote in a note.
